TaxTMI 
TaxTMI 
2023 (9) TMI 1730
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....facts and contentions raised. Observations made and findings arrived at for this year shall apply mutatis mutandis to the other year also i.e. AY 2017-18. 3. We take up grounds of appeal raised by the assessee in AY 2016-17 which are reproduced as under: 1. That the learned Commissioner of Income Tax (Appeals)-26, New Delhi has erred both in law and, on facts in upholding the determination of income made by the learned Assistant Commissioner of Income Tax, Central Circle- 15, New Delhi of the appellant at Rs. 6,61,40,343/- as against declared income of Rs. 3,58,34,630/- by the appellant in an order of dated 22.12.2018 u/s 143(3) of the Act. 2. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining an addition of Rs. 3,03,05,713/- representing long term capital gain on sale of listed shares of M/s Capital Trade Links Ltd., as income of the appellant for the instant assessment year despite the fact that the said sum was exempt under u/s 10(38) of the Act. 3. That while sustaining the aforesaid addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that appel....
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.... 3.7. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that in absence of books of accounts maintained by the appellant, section 68 of the Act has no application to the case of the appellant. 4. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts by making an addition of Rs. 9,09,171/- representing presumptive commission alleged to be paid by appellant @ 3% to operator for providing long term capital gain and taxed as unexplained expenditure u/s 69C of the Act. 4.1. That aforesaid enhancement by learned Commissioner of Income Tax (Appeals) in the impugned order is beyond the scope of powers vested u/s 251 (2) of the Act and thus in excess of jurisdiction. 5. That both the authorities below have framed the impugned order without granting sufficient proper opportunity to the appellant and therefore the same are contrary to principles of natural justice and hence vitiated. Prayed it is therefore, prayed that addition sustained by the learned Commissioner of Income Tax (Appeals) may kindly be deleted. It be further held that enhancement made by the learned Commissioner of Inco....
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.... 1. Copy of contract notes issued by Rajgul securities (P) Ltd., dated 22.06.2015 to 28.12.2015 for sale of 3,94,343 shares 2. Copy of financial ledger account of assessee in the books of Rajgul Securities (P) Ltd. from 01.04.2015 to 31.03.2016 3. Copy of bank book and bank statement of Punjab National Bankaccountnumber1120000100154913showing receipt from sale of shares from 28.03.2015 to31.03.2016 4. Copy of transaction statement of assessee in the books of Rajgul Securities Ltd from 01.04.2011 to 15.07.2014 5.3. Assessee furnished all the required details and documents in response to notices issued u/s 142(1) and show cause notices which are placed on record. However, ld. AO proceeded to complete the assessment by making the addition of Rs.3,03,05,713/- towards LTCG on the sale transaction of shares of CTL. The finding and conclusion drawn by ld. AO in this respect is reproduced as under, for ease of reference: "2.4. Findings of the AO: The long term capital gain claimed on the sale of the shares of the above noted company prima facie appears as bogus. Thus, it is amply clear that the stake holders involved in these transactions were ei....
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....leged bogus LTCG u/s 69C. He drew his conclusion by holding that 'accommodation entry do entail certain brokerage/ commission expenses'. Aggrieved, assessee is in appeal before the Tribunal. 6. Ld. Counsel for the assessee, at the outset referred to the order of Ld. CIT(A) who had recorded the finding of facts in para 4.2 of his order which is noted as under: "4.2 The appellant has relied on following evidences: ● Shares were directly purchased from M/s Venues Insec Pvt. Ltd. ● Payment for purchase of shares was made through Banking Account of the assessee ● The shares have been held by appellant for more than 12 months. ● Shares were dematerialized and sold through stock exchange at the prevailing market prices where the assessee has no control over prices as well the purchasers. ● STT was duly paid on the sale of shares as sold through recognize Stock Brokers and contract notes were submitted. ● Payment was received against sale through Brokers and in the Bank account of the assessee ● The Contract documents evidencing purchase & sales have been submitted a....
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....to the details of investment and capital gain in preceding and succeeding years which is extracted below. 6.7. For the aforesaid contention of assessee being a habitual investor, he placed reliance on the following judicial precedents: i. Anoop Jain vs ACIT[2020] 114 taxmann.com 550 (Del Trib) 29. In his written submissions, the ld. DR has referred to various judgments and heavily relied upon the decision of the Hon'ble High Court of Delhi in the case of Suman Poddar v. ITO [2019] 112 taxmann.com 330/[2020] 268 Taxman 320 and in the case of Udit Kalra v. ITO [IT Appeal No. 220 of 2019, dated 8-3-2019] and several other decisions of the coordinate bench. 30. We have given thoughtful consideration to the orders of the authorities below and have carefully perused the judicial decisions relied upon by the ld. DR. We find that in all those cases, either the assessee entered into solitary transaction resulting into long term capital gain or prior to the solitary transaction, the assessee was neither engaged in the purchase and sale of shares nor subsequent to earning of long term capital gain, the assessee was found to be engaged in the purchase and sale....
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.... case of Reeshu Goel vs ITO in ITA No. 1691/Del/2019 dated 07.10.2019 which has dealt with similar issues relating to financial worth of the scrip, adverse inference based on inquiry report of Investigation Wing Kolkata, reference to any material or evidence of assessee found indulged in manipulating or rigging the share price, generalized approach on the modus operandi and reliance on statement of certain brokers. This decision has been affirmed by the Hon'ble jurisdictional High Court of Delhi in PCIT vs Reeshu Goel in ITA No. 173/2021 dated 14.12.2021. Relevant observations and finding arrived by the Coordinate Bench of ITAT Delhi are extracted below: "18. The entire premise of the Assessing Officer for treating the entire transaction to be a bogus Long Term Capital Gain and making addition u/s. 68 is that, firstly, M/s. CCL I.T.A. No. 1691/DEL/2019 20 International Ltd. did not have much financial worth to justify such a price rise; secondly, the SEBI had suspended the trade of the share for a brief period; thirdly, he has pointed out the history of price rise between 06.02.2010 to 25.11.2014 and then has drawn adverse inference that price of these shares were mani....
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....ted out in the documents submitted by the assessee nor has the broker of the assessee been inquired upon. Simply relying upon the general modus operandi and statement of some brokers recorded by the Kolkata Investigation Wing does not mean that all the transactions undertaken of the scrip M/s. CCL International Ltd. through the country by millions of subscribers are bogus. Thus, in absence of any material or evidence against the assessee, we do not find any reason as to I.T.A. No. 1691/ DEL/2019 22 why the claim of Long Term Capital Gain from sale of such share should be denied. Consequently, the addition on account of commission is also deleted. Accordingly, we delete the addition made by the Assessing Officer. 19. In the result, the appeal of the assessee is allowed". 6.12. Ld. Counsel also referred to the decision of Hon'ble Rajasthan High Court in the case of PCIT vs Gaurav Bagaria 453 ITR 513 which has upheld the finding of Tribunal that once the assessee has produced all the relevant documentary evidences to establish the genuineness of transaction which are not rebutted and also the financial statements to show that company has earned handsome profit, such fa....
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....s about these investments such as the business of the company, how assessee came to know about investment credentials of these company, history of the investments made by the assessee in earlier years and subsequent years, Examination of the brokers of the assessee with the screen shot of the time and date stamp of transactions, liquidity of the stock, when the order from purchases and sales were entered by the broker and when it was executed on online platform iii. Obtaining the details of the transaction from stock exchange and details of counter parties purchasing these shares and selling those shares. It would have given ld AO lead to the accommodation entry providers and exit providing companies iv. Where from in the Demat account of the assessee the shares of the above-alleged company has entered into. This information would have been available to the assessing officer had he examined the depository in which the shares are held in the Demat account. v. When the assessee has sold shares there has to be date and time stamped transaction at the respective stock exchange. Time and date stamped tra....
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.... the information provided by the assessee. He merely made the addition holding that assessee has not shown justification for purchase of shares at a very high price .... " 6.15. Reference is also made by the ld. Counsel to provisions of section 142(2) which empowers the ld. AO conduct necessary inquiries as he deem fit for the purpose of making the assessment. Reliance is also placed on the decision of Karuna Garg vs ITO [2019] 109 taxmann.com 403 (Del Trib), wherein it is held as under: "20. There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels. 21. A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing ....
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....not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income-tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under sections 133(6)/ 131 of the Act were issued to M/s Gold Line International ....
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....annot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of ....
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..... CIT(A) to this effect. It is submitted that the power of enhancement cannot extend to issues which were neither the subject matter of order appealed against not could possibly arise from the order appealed. He placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC) wherein it held as: "The principle that emerges as a result of the authorities of this court is that the Appellate Assistant Commissioner has no jurisdiction, under section 31(3) of the Act, to assess a source of income which has not been processed by the Income- tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessment order, and therefore the Appellate Assistant Commissioner cannot travel beyond the subject-matter of the assessment. In other words, the power of enhancement under section 31(3) of the Act is restricted to the subject- matter of assessment or the source of income which have been considered expressly or by clear implication by the Income-tax Officer from the point of view of the taxability of the assessee. .............. As we have already state....
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....s included in the table at serial no. 26. In the column "Scrip Group", there is a mark of 'X' against CTL. For this 'X', it is stated :- "In order to classify equity securities of companies that are only listed/traded at BSE and satisfy certain parameters into separate sub-segments called "X", and "XT". At the time of review any securities falling in Trade-for-Trade segment (DT' or T' groups) are classified under "XT" sub-segment. XT includes all the stocks which are exclusively listed on BSE and settled on the trade-to-trade basis." Ld. DR thus submitted that CTL is a penny stock and forms part of the report of the Investigation Wing and therefore LTCG claimed by the assessee is bogus. 7.3. The above stated para 4.2 along with Table is extracted below for ready reference: "4.2 BSE Surveillance measures SEBI in order to enhance market integrity and safeguard interest of investors, have introduced Graded Surveillance Measures (GSM) wherein certain identified securities shall be subjected to enhanced monitoring and surveillance actions. The GSM (Graded Surveillance measure) is a system designed by SEBI to keep a check on shares which see an abnorma....
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....nk LTD 538476 ASM STAGE I X 27 Classic Global Finance And Capital 538433 GSM STAGE 2 XT 28 Goenka Business & Finance Ltd 538787 ACTIVE XT 29 Inceptum Enterprises LTD 538541 LISTING FEE NOT PAY Z 30 Smiths & Founders (India) Limited 513418 Trading Restricted XT 31 Toyam Industries Ltd 538607 ASM STAGE I X 32 Virtual global Education Ltd. 5347441 ACTIVE Xt 33 Nutraplus India Ltd 524764 SUSPENDED Z 34 Panafic Industrials Ltd. 538860 GSM STAGE I XT 35 Apoorva Leasing Finance and Investment Company Ltd. 539545 TRADING RESTRICTED XT 36 Negotium International Trade Ltd. 537838 ANNUAL LISTING FEE DUE Xt 37 Tarang Projects & Consultant Ltd. 538287 Suspended X Further, BSE Groups for Scrip categorization in T, X and Z also need to be understood in order to fully understand the status of subject scrips. 'Z' Group :- Companies which have failed to comply with its listing requirements and/ or have failed to resolve investor complaints and/or have not made the required arrangements with both the dep....
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....dition. (Para 16-16.3) iii) Fundamentals of CTL do not support the premium it commanded 3.1. (3) Incremental Revenue from operation running in several Crores and incremental profit before taxes since 2013 onwards. (Para 10-10.5) iv) Modus operandi 3.2. (3-5) General(Not specific observation regarding assessee) v) Report of SEBI dated 19.12.2014, 04.12.2014, 08.05.2015, 09.11.2015, 17.04.2015 3.3 (5) None of report is regarding 'Capital Trade Link' S. No Date of Report Name of Scrip i) 19.12.2004 M/ s. first financial Services Ltd. ii) 04.12.2014 M/ s. Moryo Industries Ltd. iii) 08.05.2015 M/s. Pine Animation Ltd. iv) 09.11.2015 M/s. Redford Global Ltd. V) 17.04.2015 M/ s. sunrise Asian vi) SEBI provided information pertaining to the Scrip to the income tax department 3.4 (6) No such information provided to appellant. (Para 17-17.2) The learned Assessing Officer has mechanically lifted the conclusions/ observations arrived without making any independent inquiries either from SEBI or stock exchange or broker or share company to ascertain genuineness of such transactions. (....
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....ed rules of suspicious transactions are not applicable in respect of transactions of listed security where the transactions are supported by due evidence on record. (Para 15-15.1) 8.2. We find force in the multi-fold contentions raised by the ld. Counsel as stated above, supported by corroborative evidence and relevant judicial precedents, all of which is discussed in detail. Assessee has sufficiently explained his case with all the cogent evidence and material which have not been rebutted or controverted or found to be false. Having convinced with the submissions made by the ld. Counsel, we list down the summary of them to give our affirmation to the same and uphold the claims made by the assessee in respect of Long Term Capital Gain on sale of shares of CTL. We draw our force from the judicial precedents referred and discussed above relating to the respective contention. Summary of said multi-fold contentions is as under: Sr. No. Particulars i) Investment and disinvestment in share of Capital Trade Link Ltd. cannot be treated as accommodation entries in the garb of Long Term Capital Gain when the transaction of sale and purchase of shares has been explained by plac....
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....tatement with DP ID 12069800 and Client ID 00001312, issued by Rajgul Securities Pvt. Ltd., DP of Central Depository Services (I) Ltd. From the perusal of the said statement, it is noted that purchase of 5,00,000 shares of CTL were credited on 19.06.2014 in the DMAT account which were purchased off-market on 13.06.2014. Thus, in our observation, it is not a case where purchased shares are credited in the DMAT account just prior to the date of sale and remain in the pool account of the broker until then. Even though shares were purchased in an off-market transaction, the same were dematerialized and credited in the DMAT account at the earliest possible date, immediately after its actual purchase. 8.4. Further, from the perusal of the note from the office of Directorate of Income Tax (Invest), New Delhi, referred by the ld. DR in his submission and as extracted above, we find that it does not in way suggest that scrip of CTL is suspended or has failed to comply with listing requirements of the stock exchange so as to conclude on an adverse finding recorded by the authorities below. 8.5. Also, under section 142(3), it is incumbent upon the ld. AO to give an opportunity of being ....
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....ment order, it is not at all discernible whether the addition is made by applying provisions of section 68 or a disallowance is made of the claim of exemption of LTCG u/s 10(38) of the Act by the ld. AO. 8.6.2. Taxable rate of 60% u/s 115BBE is stated to be applied by the ld. AO on the addition made. From the perusal of section 115BBE, it is noted that the said section applies only when total income of an assessee includes any income referred to in section 68, 69, 69A to 69D. Considering this, if an inference is drawn that ld. AO has applied one of these specified sections for making the addition of LTCG on sale of shares of CTL, we find that in the entire assessment order, there is no whisper by him on the three vital limbs of establishing identity and creditworthiness of the buyers of the shares sold by the assessee and genuineness of the said transaction. We do not find any action taken by the ld. AO to enquire on these three vital aspects from the assessee either by issuing notices/summons under section 133(6) or 131 of the Act. 8.6.3. In this context, it is worth noting that impugned share sale transaction undertaken by the assessee is on the online digital trading platf....
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....by ld. AO from the assessee. However, ld. AO made the assessment by making an addition of Rs. 3,03,05,713/-, giving deduction for cost of purchase of shares. Such an addition of amount computed under the head 'income from capital gains' by accepting the purchase giving its deduction and holding the balance as 'income from other sources' is not tenable. 8.7. Considering the totality of the facts and circumstances of the case, factual matrix and submissions of parties narrated above and judicial precedents relied upon as discussed as well as discussion and observations made herein above, we set aside the orders of the authorities below and delete the addition made towards Long Term Capital Gain on sale of shares of CTL. Accordingly, grounds taken by the assessee in this respect are allowed. 8.8. Also, addition made by resorting to enhancement of income by ld. CIT(A) towards brokerage/commission as unexplained expenditure u/s 69C by treating the LTCG as bogus and accommodation entry is deleted since it is consequent to the addition made towards LTCG. Accordingly, grounds taken by the assessee in this respect are allowed. 9. Grounds taken in the appeal for AY 2....
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.... 108,753 71,491,247 Long Term 21 2016-17 TV 18 -Equity 20.07.2015 995.375 13.07.2015 1,024,184 (28,809) Short Term 22 2016-17 Infosys Ltd - Equity 15.06.2015 58.321,360 11.06.2015 119,775.484 (61,454,174) Short Term 23 2016-17 Kotak Mahindra Bank-Equity 30.07.2015 10.986.923 06.07.2015 22.159.785 [11.172,862) Short Term 24 2016-17 Other Shares (126,107) Short Term 25 2016-17 Mutual Fund 17,901 Short Term 26 2017-18 Capital Trade Link Ltd-Equity 10.08.2016 7.889.342 13.06.2014 105,657 7.783.685 Long Term- Exempt 27 2017-18 Infosys Ltd - Equity 19.07.2016 63,508,007 18.06.2015 63,508.WOJ Long Term- Exempt 28 20117-18 Kotak Mahindra Bank-Equity 23.08.2016 11,774,743 10.07.2015 11.774,743 Long Term- Exempt Infosys Ltd - Equity 20 2017-18 Multiple Equity Shares 32.275.501 29.771,955 7.503.546 Short Term 30 2018-19 DLF - Equity 20.04.2017 4,308,949 30.11.2015 2,833.540 1.475,409 Long Term- Exempt 31 2018-19 ICICI Prudential FMH 23.05.2017 6.695.600 24.10.2013 5,000,000 6,181,818 513,782 Long Term 32 2018-19 Kotak FMP 30.05.2017 39,022.566 28.03.2014 30,000,000 37,090,909 1.931,657 Long Term 33 2018-19 Jasgold Offshore Pv....
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....n Current Investments 91,000 28,97,472 2,72,00,000 2. Current Assets Inventories 30,93,160 74,17,826 23,40,379 2,99,36,594 9,97,381 3,43,63,45 Trade Receivables 16,900 310 70,530 3.00.000 Cash and Cash Equivalents 3,95,878 70,43,931 1,54,51,907 90,98,831 53,13,360 4,49,794 18.33,938 Short-term loans and advances 25,37,78,941 21,83,54,100 15,85,35,364 20,14,03,482 8,46,70,969 5,64,54,732 5,79,38,87 Other Current Assets 3,99,918 34,457 1,35,61,233 88,00,000 26,11,67,635 23,92,40,258 20,69,64,188 24,34,34,292 10,45,67,369 6,57,04,526 9,44.37,10 STATEMENT OF PROFIT & LOSS Particulars Amount 2019 2018 2017 2016 2015 2014 2013 INCOME Revenue From Operation 42,728,522 38,375,815 92,232,482 172,238,859 1,55,33,670 43,301,382 25,614,515 Other Income 123,585 3.166.026 30,869 10,534,368 28,42,393 4.28,52,107 4,15,41,841 9,22,63,351 18,27,73.227 1.83,76,063 4,33,01,382 2,56,14,515 EXPENDITURE 24,708,602 27.787.012 81,274,674 177,384,385 1,48,69,359 4,25,38,708 2.52,05.572 Profit / (Loss) Before Tax 1,81,43,505 1,37,54,829 1,09,88.677 5.3,XX,X47 35,06,701 7,62,674 4,08,943 Tax Expense: Current Tax 52.94,183 41,00,655 31,90,184 16,49....